What are MCIs?

To support co-operatives, mutuals and member-owned organisations such as ours, the Federal Government initiated an investigation into legislative reforms that could be made to help the mutual sector be more competitive.

The Senate inquiry and independent review (known as the Hammond Review)¹ looked into the challenges member-based organisations face in raising capital and other issues. The conclusion was that member-owned organisations were not as readily able to raise capital as other organisations, and this affected their ability to grow, innovate and compete.

All entities need capital in order to grow their businesses. In the case of banks, this growth may include offering new products and providing more or better services. However, historically, mutual organisations have only been able to raise funds or capital by retaining profits.

Following the Hammond Review, the Commonwealth Government passed legislation in 2019² that provides mutual entities another way to raise capital without affecting their mutual status – the Corporations Act now allows mutual entities to raise equity by issuing ‘mutual capital instruments’ (MCIs).

MCIs are a type of share which can be issued by mutuals who satisfy the new Corporations Act definition of “mutual entity”. Our mutual satisfies this definition, i.e. the Bank is a mutual entity under the Corporations Act. The option to issue MCIs provides us with greater flexibility to raise capital in the best interests of our member shareholders. But we need to update our Constitution to be able to issue these MCIs.

MCIs would be perpetual (i.e. they would have no maturity date), so they would be a form of permanent capital in a mutual entity like ours. A dividend would only be payable on an MCI if the directors decide to pay a dividend. Once issued, MCIs would be tradeable between investors assuming there is a market for them.

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Is Teachers Mutual Bank Limited going to issue MCIs?

Teachers Mutual Bank Limited has no current plans to issue Mutual Capital Instruments, or MCIs.

The change to Teachers Mutual Bank Limited’s constitution to permit issuance of MCIs will give the bank the flexibility to issue MCIs should it be necessary or desirable.

Any decision to issue MCIs would need to be approved by the Board of Directors, who would need to determine that this decision was in the best interests of the bank and its members.

Any issuance of MCIs would also be subject to obtaining the necessary regulatory approvals. At that time, should MCIs be issued, it will be the decision of the Board of Directors to determine the terms of issue for those MCIs.

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How will MCIs benefit the Bank – and me?

The ability to issue MCIs is an important and positive step for mutual entities like ours.

The conditions within the banking industry can change quickly and responding to these changes can require a significant amount of capital.

If the Board of Directors decides that the Bank should issue MCIs, it will likely be so we can respond to changes in the industry for the benefit of our members or to answer member demand for new products or services.

Importantly, we will have the option to raise equity (instead of debt) without affecting our member-status.

As mutual organisations have been restricted in how we could raise funds or capital, our ability to grow and compete has been inhibited. Many other mutual organisations have demutualised to raise the capital they need to compete.

The aim of MCIs is to avoid this and level the playing field in the banking sector, making it easier for member-owned organisations such as ours to compete and grow while maintaining our mutual status.

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Why do we need to update the Constitution and why now?

We’re committed to ensuring that no updates to the Constitution affect the Bank’s mutual status now or in the years ahead. These amendments will not affect the Bank’s mutual status.

For the Bank to compete effectively and ensure our sustainability in the years ahead, our first step will be to amend our Constitution to bring it into line with the new legislation and become an “MCI mutual entity”.

Essentially, we will add a statement into the Constitution confirming our ability to potentially issue MCIs at some stage in the future, and that the Board has the authority to issue MCIs. Other provisions required to be included to satisfy the Corporations Act and APRA requirements are also proposed to be included. These provisions are the same as the provisions which many other mutual entities have already included in their Constitutions since the MCI legislation was introduced in early 2019.

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Is Teachers Mutual Bank de-mutualising?

No. Firstly and most importantly, Teachers Mutual Bank Limited will remain a mutual bank. As a mutual entity, the updates to Teachers Mutual Bank Limited’s constitution do not change the bank’s mutual status. They will permit the organisation to continue to invest, innovate, grow and compete, while maintaining its mutuality.

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Will holders of MCIs be member shareholders of Teachers Mutual Bank Limited?

Should a decision be made by the Board of Directors in the best interests of the bank and its members to issue MCIs, at that time and as part of the terms of issue, the Board would decide who to issue MCIs to. These could include member shareholders and, or non-member shareholders of Teachers Mutual Bank Limited.

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Will holders of MCIs be able to vote?

The Federal Government passed legislation allowing mutuals to issue MCIs for the purpose of raising permanent capital. This legislation ensures that an MCI shareholder cannot hold more than one vote at a general meeting, no matter how many MCIs they hold.

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When did we become a Certified B Corporation?

We proudly became a Certified B Corporation in January 2022, joining 500 other organisations in Australia³.

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What is a Certified B Corporation?

Certified B Corporations (B Corps) are for-profit companies dedicated to using business as a force for good. B Corps must meet the highest standards of verified social and environmental performance, public transparency and legal accountability to balance profit and purpose.

Unlike traditional corporations, B Corps are legally required to consider the social and environmental impacts of their decisions on all stakeholders, which includes customers, workers and communities.

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How did we become a B Corp?

Our entire Bank was measured and verified by a third party in order to become a B Corp. This involved a rigorous, verified performance assessment across the five key areas of governance, workers, customers, community and the environment. The process took over 12 months to complete, featuring 300+ scored questions, multiple verification rounds and a series of interviews.

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Why is B Corp Certification important?

The combination of third-party verification, public transparency and legal accountability makes B Corp Certification unique, credible and significant. It is unique in that it measures a company’s entire social and environmental impact across all operations.

Being a Certified B Corporation builds on our socially responsible banking credentials. It affirms our commitment to being a force for good for our members and the planet. It reinforces our obligation to live and breathe our core value of sustainability and to make sure we invest our members’ money responsibly and ethically. As our purpose is to provide ‘banking for good for those who do good’, our status as a B Corp is proof of our credentials and underlines our dedication to running our bank for people, planet and profit.

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Why did we need to update the Constitution?

All B Corp institutions must amend their Constitution, in the manner required by B Corporation, to reflect their commitment. We are required to submit an updated Constitution ahead of our re-certification date to maintain our status as a B Corp.

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What was updated?

The following two provisions of the Constitution are proposed to be amended:

Additional words to the Company’s Objects in Appendix 1

Whilst pursuing the above Objects, the Company’s purpose is to have an overall positive impact on society and the environment.

A new Rule 10.4 to impose a duty on the Board to consider, and require management to consider, the impacts of their decisions on members, staff, society and the environment

1. In discharging their duties under this Constitution, the Corporations Act and the general law, the directors of the Company:

a. must consider, and cause the other officers of the Company to consider:

i. the likely consequences of any decision or act of the Company in the long term; and

ii. the interests of the members of the Company; and

iii. the interests of the Company’s employees; and

iv. the need to foster the Company’s business relationships with suppliers, customers and others; and

v. the impact of the Company’s operations on the community and the environment; and

vi. the desirability of the Company maintaining a reputation for high standards of business conduct; and

vii. the ability of the Company to create an overall positive impact on society and the environment.

b. Need not give priority to a particular matter referred to in paragraph (a) over any other matter, unless the Company has stated in this Constitution that the directors of the Company must give priority to certain matters related to the pursuit or creation of any objects listed in this Constitution.

These changes reflects our mission to be a force for good and demonstrates our commitment to act in the best interests of all stakeholders – including the community, our workers and the environment.

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If we were already a B Corp, why were we asking members to vote?

All B Corp institutions must update their Constitution, to reflect their commitment. Teachers Mutual Bank Limited is required to submit an amended Constitution ahead of our re-certification so that we maintain our status as a B Corp.

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Important Information

1. Greg Hammond OAM, Independent Facilitator Review Report on Reforms for Cooperatives, Mutuals and Member-owned Firms, 8 November 2017, accessed 11 July 2022.
2. Australian Parliament, Treasury Laws Amendment (Mutual Reforms) Bill 2019, accessed 11 July 2022.
3. B Lab, About B Corp certification, accessed 11 July 2022.

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